2017 (5) TMI 1360 - AT - Income Tax

Addition on account of Long Term Capital Gains (LTCG) - sale of shop - transfer u/s 2(47) - Held that - We find that the assessee is a member of co-operative housing society holding shop in the said society which was sold by him vide agreement to sale dated 9.2.2009 for a total consideration of 30.00 lakhs and a sum of 1.00 lakh was received as an advance with the signing of the agreement dated 9.2.2009. However due to non fulfillment of terms of the agreement to sell qua the payment of balance amount the sale eventually took place in the assessment year 2010-11. The balance consideration of 29.00 lakhs was paid in the month of April 2009 and the possession was handed over to the purchaser on 11.5.2009 as evidenced by a letter dated 11.5.2009 and also vide sale-com-assignment deed dated 11.5.2009. Thus the sale of shop has definitely taken place in the assessment year 2010-11 and not in the assessment year 2009-10 as has been observed and concluded by the AO and confirmed by the ld.CIT(A). Further the sale is covered under the provisions of section 2(47)(v) and not under the provisions of section 2(47)(vi) of the Act as has been held by the lower authorites. In the provisions of section 2(47)(v) the sale of property means allowing of the possession of any immovable property to be taken or retained in part performance of a contract whereas under the provisions of section 2(47(vi) it has been mentioned that any transaction whether by way of becoming a member of or acquiring shares in a co-operative society company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever which has the effect of transferring or enabling the enjoyment of any immovable property is also sale. We also find that for a transfer of property in question the permission is required to be obtained from the CIDCO which was granted on 18.5.2009. Addition deleted - Decided in favour of assessee.

Summary

Issues Involved:
1. Confirmation of addition of ?22,42,843/- as Long Term Capital Gains (LTCG) for the assessment year 2009-10.
2. Determination of the correct assessment year for the sale of property and corresponding tax liability.

Detailed Analysis:

Issue 1: Confirmation of Addition of ?22,42,843/- as LTCG

The assessee filed a return of income declaring a total loss of ?1,67,257/-. The case was selected under CASS, and statutory notices were issued. During assessment, the AO observed that the assessee sold an immovable property for ?30 lakhs, which was not shown in the return. The assessee claimed an exemption under section 54F of the Act for investing ?13,62,900/- in a new house property, but this was declined by the AO based on the Supreme Court decision in Goetz India Ltd V/s CIT (2006) 284 ITR 323 (SC).

The AO calculated the capital gains as follows:
- Sale consideration: ?30,00,000
- Less brokerage: ?51,111
- Net consideration: ?29,48,889
- Less Indexed cost of acquisition: ?8,06,046
- Long term capital gains: ?21,42,843

The assessment was framed at an income of ?23,14,390/-. The assessee contended that the sale took place in the assessment year 2010-11, as the balance sale consideration of ?29 lakhs was received in that year, and possession was handed over in May 2009.

Issue 2: Determination of the Correct Assessment Year for the Sale of Property

The First Appellate Authority (FAA) dismissed the assessee's appeal, stating that the transfer took place on 9.2.2009 when the agreement to sell was registered, and part consideration of ?1,00,000/- was received. The FAA relied on the Bombay High Court decision in Chaturbhuj Dwarakadas Kapadia Vs CIT, which held that the date of contract is relevant for determining the year of chargeability under section 2(47)(v) of the Act.

The assessee argued that the transfer could not be said to have taken place on 9.2.2009 as only ?1.00 lakh was received, and the balance of ?29 lakhs was received in April 2009, with possession handed over in May 2009. The assessee claimed that the transaction was covered under section 2(47)(v) of the Act, which pertains to the allowing of possession in part performance of a contract.

The Tribunal considered the rival contentions and found that the sale of the property took place in the assessment year 2010-11. The balance consideration was paid in April 2009, and possession was handed over in May 2009, as evidenced by a letter and sale-com-assignment deed dated 11.5.2009. The Tribunal concluded that the sale was covered under section 2(47)(v) and not section 2(47)(vi) of the Act. Additionally, permission from CIDCO was obtained on 18.5.2009, further supporting the assessee's contention.

Conclusion:

The Tribunal set aside the order of the FAA and directed the AO to delete the addition made on account of LTCG. The appeal of the assessee was allowed, and the order was pronounced in the open court on 27th April 2017.